Understanding The Challenges And Cycles of Business Growth and How To Overcome Them

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Business Growth

The owners of a family run business continue to stick to outdated practices and conventional methods of business. They refuse to budge from this stance and thus witness a surge in workload and increased inefficiency in the daily operations. Want to venture a guess as to what happens?
Profits start to decline and the business rushes towards bankruptcy.

A sizable insurance company reprimands its manager, holding him responsible for failing to achieve targets. The root cause of this problem is evident; centralization of authority and the lack of leeway given to managers in terms of decision making. The outcome:
This prompts him to leave the organization and causes an exodus of young talent from the company.

Such examples point towards the fact that the solutions to most of the present day challenges faced by organizations lie in their own past rather than in current market dynamics. Organizations must look within and ask certain questions like:
What are the roots of the company?
What is the current scenario?
Where do we intend to go from here?
The answers to these questions are critical and will decide the fate of the organization.

Irrespective of the size of an organization, whether it is a multinational corporation or an aspiring solo entrepreneur, what remains common between them is the drive for growth. Growth is usually accompanied by changes; internal and external, and also by challenges that are an integral part of the upwards trajectory of any organization. The intention of this article is to discuss these developments and the hardships that entail them. In order to better understand these phenomena, we shall use the help of a business growth model, to put things into perspective.
The Evolutionary/ Revolutionary Cycle

In 1972, Larry Greiner published a model of business growth that proposed a 5 step approach that identified phases of development that companies went through as they expanded. He added a sixth phase to the model in 1998. Each of the phases began with a period of evolution that was accompanied by steady growth and stability which then proceeded into a state of turmoil and culminated into a revolutionary period. The resolution of these periods would come about only through rigorous change. Only then would the company move into the next evolutionary stage. The cycle then repeats itself.


Organizational Development Model

Most of the research that was carried out prior to that of Greiner’s was largely empirical in nature. A model of the overall process hadn’t been created. However the research was instrumental in pointing out the 5 elements of any business, whose interactions made organizational development possible.

  1. Age of the organization
  2. Size of the organization
  3. Stages of growth
  4. Stages of crisis
  5. Growth rate of the industry

Greiner’s Curve

Greiner’s publication of ‘Evolution and Revolution as Organizations Grow’ in the Harvard Business Review in 1972 was instrumental due to the fact that it was empirical and also theoretical in nature. It further builds upon the organizational developmental model above. It expounds on the various phases of growth, at what periods they occur, the crises that follow each period of growth and stability and the necessary change in management approach vital to resolve and overcome those stages of turmoil and evolve into the next.

A comprehensive graphical representation of the Greiner’s Curve can be found on Slidemodel which we can use as a reference.

Let us elaborate a tad bit upon these phases.

  1. Creativity Phase

When an organization is in its nascent stages, all efforts are directed towards creating a product/ service and a market for it.

  • Founders are usually technically or entrepreneurially inclined towards setting up a foundation, team building and outsourcing They dedicate their energies towards development of a product/ service and selling it.
  • Channel of communication is informal and frequent.
  • Long hours of work yet modest salaries with hopes that ownership benefits will grow with profits.
  • Decision making oriented by market reactions and highly sensitive to customer feedback.

This period of evolution is followed by a crisis.

Crisis of Leadership

  • Management activities increase as daily operations scale. Founders find it increasingly difficult to juggle multiple responsibilities.
  • Increase in business means need for more employees, talent with knowledge about efficient manufacturing and business techniques.
  • Founders find it difficult to delegate and part ways with responsibilities.

Solution

  • The founders must, no matter how reluctant they are, locate and bring onboard a skilled manager.
  1. Direction Phase

The company has now successfully survived the first phase, has a capable manager in place and enjoys sustained growth under new leadership.

  • Organizational structure expands; business functions separate and evolve into independent departments.
  • Systems are put in place for accounting, procurement, inventory management, etc.
  • A hierarchy comes into existence.
  • Channels of communications are now formal.

Under new direction and guidance, the organization goes through another phase of
evolution. This phase is usually hampered as the organization continues an upward trajectory.

Crisis of Autonomy

  • As the organization grows in strength, the existing hierarchal structure and managerial practices evidently fall short of being efficient to support father growth.
  • Centralized decision making does more harm than good.
  • Grass-roots level employees gather more knowledge, hands-on experience and market insight.
  • They feel constricted by protocol and procedures.
  • This result in employees not taking up initiative.

Solution

As difficult as it may be for managers, they must entrust more responsibilities and autonomy with employees. Otherwise complacency is sure to set in and the possibility of discontented employees deserting the organization for a pay hike increases.

  1. Delegation Phase

With successful adoption and implementation of a decentralized organizational structure, the next phase of growth sets in.

  • Territories are chalked out. Responsibilities are given to plant and territory managers.
  • Incentive structures, bonuses, profit centers are deployed to motivate employees.
  • Executives at the upper levels avoid getting involved in daily operations; manage by exceptions and with the help of reports. Infrequent communication.
  • Emphasis on locating and acquiring business enterprises that can absorbed within existing units.

Managers are able to penetrate newer markets. They are able to engage customers directly and develop visible market presence.

Crisis of Control

Top level execs find themselves losing control over daily operations of a highly complicated and diverse organization and feel disenfranchised in a way. This psychological barrier gives rise to the next turmoil.

  • Mid-level managers prefer autonomy as they possess an acute awareness of ground conditions.
  • Sometimes this leads to infrequent communications and impromptu decision making in their part.
  • Greiner termed this as a breeding of a ‘parochial’ attitude.

Solution

The key here is to not walk backwards and recentralize the entire system. Rather rationing of resources based on returns and priority, more efficient organizational auditing techniques and looking out for new enterprises that can be merged with existing business lines are some measures that must be incorporated.

  1. Coordination Phase

This phase of growth signifies that the company is doing reasonably well. This evolutionary cycle involves improvement and upgradation of systemic functions and operations. The need for more efficient channels for communication, increased coordination between various departments and respective decision makers is felt.

  • Decentralized units are merged into product lines or groups.
  • Intensive planning procedures are followed.
  • Control and review of line managers takes place. Staff should hired by headquarters to do so.
  • Capital Investment is allotted after deliberation and carrying out due diligence.

Crisis of Red Tape

By taking measures to ensure increased coordination, the workforce inevitably feels that it is under scrutiny. This communication gap deepens into a loss of confidence sometimes and employees feel estranged.

Solution

The key to surviving this revolutionary period is to eliminate red tape and bureaucratic procedures that slow down operational activities. Organizational overview methods must be improved and channels of communication must be made more accessible.

  1. Collaboration Phase

This phase emphasizes on strong interpersonal collaborations amongst employees across all hierarchies. The previous phase utilized formal systems and procedures whereas this one lays stress on resolution of conflicts through teamwork and interactionsbetween the employees of the organization. It shifts focus from formal control techniques towards coordination in the workforce.

  • Meetings and conferences at frequent intervals are held to discuss current progress and formulate future roadmap.
  • Focus is on solving problems swiftly through collective team action.
  • Teams from various functions are combined to handle specific tasks.
  • The motive is to reduce staff at headquarters by reassigning and absorbing them into various disciplines.
  • Rather than directing, the channel of communication now moves upwards from the bottom, i.e., the field to top level management.
  • Simplification of complicated control and review methods.
  • Educational and skill development programs are held to hone managerial skills.
  • Real-time information systems are integrated into decision making processes to assist with daily operations. Big data comes into play.
  • Incentive structures are redesigned to boost teamwork rather than individual performances.

Crisis of Identity

Most companies reach this stage and experience a plateau owing to the fact that the organizational structure has expanded to a very large extent; in most cases, the presence is multinational, the workforce is numbered in thousands and the number of products/ services encompasses a variety of applications. Thus flexibility is of essence. Rigid control systems must give way to more fluid operational and management systems. The organizational culture must lean towards innovation, providing value and giving back to the society as well.

  1. Alliances Phase

The sixth phase is an addendum, which was put in comparatively recently by Greiner. Although much study is yet to be put into it, he laid down a basic groundwork of what sort of growth a company looks forward to at this stage of evolution.

By the time this phase sets in, internal resources have been utilized to their maximum potential and the organization must look outwards if it wishes to expand further.

  • Mergers, acquisitions and in some cases takeovers are the way forward.
  • Acquiring businesses that complement existing processes and will add to revenue streams with minimal investment and adjustments to their organizational structure, staff and work culture.
  • Outsourcing business processes is another transformative strategy that has taken the world by storm.

Crisis of Growth

The organization reaches a saturation point, markets are overpopulated and customer acquisition is a nightmare. Many companies are going through this phase and it is an ongoing process of evolution to which we are witness.

Solution

The only apparent solution that comes to mind is forming beneficial and viable alliances. Greiner termed them as ‘Extra-Organizational Alliances’. This will grant access to new markets, products, technologies, and workforces. It also expands the horizons of any business and forces them to reevaluate and reinvent the wheel.

Conclusion

It is worth noting some salient points about the model:

  • Greiner’s Curve is as relevant today as it was in 1972, if not more.
  • Although the model seems purely theoretical and academic at first glance, this evaluation couldn’t be further from the truth. Its practical applications would translate into invaluable assistance for all entrepreneurs and business leaders of any and all enterprises.
  • Transitions between phases are not smooth. Neither do they occur naturally. Leaders and directors must make conscious efforts to steer the company towards greener pastures.
  • There is a certain logical paradox thatcomes with the premise of the model. Certain solutions implemented by managers will at a later point be the seeds for further revolution. Such is the way of business, an unavoidable circumstance.
  • This is not a cookie cutter solution. It is simply an outline that must be followed and revisited at regular intervals to keep things on track. One can refer to HGKC which has good resources on Greiner’s work, which I personally found quite engaging.
  • Organizational solutions pave the way for future problems and the circle continues.

A quote from Greiner seems an apt way to wrap up this long drawn article. Sincerely hope that the read was worth the time and effort. Please feel free to share any opinions, feedback or any points that you’d like to add to this piece.

“The clues to future success lie in the past.” – Larry Greiner

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Andreas is recognized as one the top Business Coach, Consultant and Advisor by Forbes Magazine. He is an award winning best selling author, army combat veteran and columnist at Forbes, Inc, Huffington Post and Influencive. Andreas works with business owners and business leaders to help them build high performing businesses so that they can have more profits, fans and freedom and grow their business without stress, overwhelm and burnout in any economy.

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